As we approach the end of the year, contractors should consider strategies to minimize 1999 taxes. A complete discussion of year-end tax planning is beyond the scope of this article. But one area of particular importance is the expensing election under Section 179 of the Internal Revenue Code.

Certain businesses may elect to "expense" up to $19,000 in equipment and other fixed assets acquired during the year (this figure increases to $20,000 in 2000). By allowing an immediate deduction rather than depreciation over several years, the election can improve a contractor’s cash flow.

There are a number of strategies to make the most of the expensing election, including:

• If you’re contemplating the purchase of equipment that will put you over the $19,000 limit, consider acquiring some of it in 2,000.
• If you’ve acquired more than $19,000 in qualifying assets this year, maximize current deductions by expensing the assets with the longest useful lives. (Note, however, that if you ordinarily dispose of longer-lived assets within a few years, it may be preferable to expense other items.)
• Use the expensing election to avoid the "mid-quarter convention," which can reduce depreciation deductions for businesses that acquire too many depreciable assets during the last quarter of the year. If you elect to expense assets acquired during the last quarter, they are not counted in determining whether the mid-quarter convention applies.

The Section 179 election is subject to a number of limitations and restrictions. For example, the deduction is phased out for businesses that acquire more than $200,000 in qualifying property during the year. Also, the deduction is limited to the business’s taxable income for the year.